Tuesday, January 01, 2008
Over at the Wall Street Journal, Amity Shlaes ponders the job creating ideas of the various Presidential candidates in light of the experiences of the New Deal:

The New Deal also created a lot of jobs--millions. And the New Deal did cause significant business activity. Industrial production--factory activity, basically--came back to 1929 levels around the time of Roosevelt's re-election. All of these outcomes are taken as evidence of public spending's success.

But what really stands out when you step back from the picture is not how much the public works achieved. It is how little. Notwithstanding the largest peacetime appropriation in the history of the world, the New Deal recovery remained incomplete. From 1934 on--the period when the spending ramped up--monetary troubles were subsiding, and could no longer be blamed alone for the Depression. The story of the mid-1930s is the story of a heroic economy struggling to recuperate but failing to do so because lawmakers' preoccupation with public works rather got in the way of allowing productive businesses to expand and pull the rest forward.

Shlaes gives an interesting example:

One of the saddest accounts of the public-works job culture I came across involved a model government farm in Casa Grande, Ariz. The men were poor--close to "Grapes of Wrath" poor--but sophisticated. They knew that the government wanted them to share jobs. But they saw that the only way for the farm to get profits was to increase output and to stop milking by hand. Five dairy crew men approached the manager to propose purchasing milking machines to increase output. They even documented their plea with a shorthand memo:

"Milking machine would save two men's labor at five dollars per day . . . Beginning in September would save three men's wages or $7.50 on account of new heifers coming in."

The men were willing to strike if they didn't get the machines, though they feared they might lose their precious places on the farm if they did strike. Their fears proved justified. "You're fired," the workers later recalled the manager replying when he saw their careful plan. The government man was horrified at the idea of killing the jobs he was supposed to create. "You're jeopardizing a loan of the U.S. government, and it's my job to protect that loan. You're through, everyone of you, get out."

That's a great illustration of the difference between the incentives the government has and the ones private individuals have.
5:32 PM